The official "blog of bonanza" for Alfidi Capital. The CEO, Anthony J. Alfidi, publishes periodic commentary on anything and everything related to finance. This blog does NOT give personal financial advice or offer any capital market services. This blog DOES tell the truth about business.

I got a glossy flyer in the mail prompting readers to check out LiveDeal (LIVE). That's usually a bad sign; glossy mailers invite my sarcasm. I can't see how this company differentiates itself from Groupon (GRPN). They both allow retail merchants to push first-time discounts to customers. They both have search functions that instantly geolocate the first-time user. Their UIs both clarify final-offer prices, but LiveDeal specifies an expiration time to prompt that retail sense of urgency. I guess that's their differentiator.

Both these companies have pathetic earnings histories. They have lost money since 2011 and that's as far back as I need to go. I am amazed that Groupon's market cap is 63x larger than LiveDeal's given their poor ability to generate earnings. I guess sucker investors are paying a premium for Groupon's market share in the e-coupon vertical. Groupon has 100x more revenue than LiveDeal and still can't make a profit. That tells me that any business model solely focused on channeling retail discounts is not scalable. A first-mover advantage doesn't mean jack squat in a vertical that offers no economies of scale.

I noticed that Groupon had more pics of attractive women and LiveDeal had more pics of food when I checked them out today. Those are two of my favorite subjects. This cursory glance at two sorry companies at least gave me some good visuals.

E-commerce is as crowded now as it was in the late 1990s. Another shakeout is due and the survivors will have UIs optimized for mobile displays. I don't care what either LiveDeal or Groupon look like on a mobile device because I don't need apps prompting me to urgently buy things I don't need, discount or no discount. I also suspect the ultimate winner in the e-coupon vertical will have no more than a dozen employees and a marketing effort governed entirely by BRMS rule engines that automate the sorting and matching of offers.

The first quarter decline in the US's GDP has barely made a ripple in the national news cycle. I think this is because the stock market's continued upward climb allows Americans the luxury of ignoring deteriorating economic fundamentals. Those Americans who are not invested in equities have their EBT cards, entitlement checks, and mortgage relief programs to keep them happy. The BEA news release page describes it as a second estimate. Revisions wouldn't be so necessary if the BEA used a simpler methodology devoid of hedonic adjustments and double-counting entertainment expenses.

I also think a second quarter of declining GDP will trigger alarm at the Fed. Two consecutive quarters of declining GDP are the textbook definition of a recession. The Fed will have to revisit its rationale for tapering its purchases of US Treasuries and agency paper. This won't happen right away, but we also won't have to wait until August to see whether the Fed is anticipating a second quarter GDP decline. Chair Yellen and her allies in the FOMC have shown the intellectual flexibility to turn on a dime. Stanley Fischer's swearing-in as the Fed's newest governor comes just in time. I expect him to do exactly what he did at the Bank of Israel when the next US crisis hits, until the crisis overwhelms the Fed's management tools and the US is forced to devalue its currency.

Meanwhile, the DJIA and S&P 500 are hitting record highs. The rah-rah crowd ignores mean reversion, but it's going to hurt when stocks return to their historical long term average of a P/E ratio at 14. Don't count on earnings climbing to make these elevated equity valuations look like a new normal. Incomes are stagnant and young people can't spend on household formation when they carry enormous college loan debts. Consumers simply will not be able to spend at levels that keep corporate earnings elevated.

I expect more bad GDP news, more Fed overreaction with stimulus, and more financial problems for Americans regardless of whether they own stocks. Nothing has changed the Alfidi Capital basic investment thesis.

I work by myself, for myself. I do this because the years I spent working with others in a corporate environment revealed to me the depths of human stupidity. Countless instances of thickheaded blunders made me roll my eyes in disgust. I'll boil down the general trends into ten signs that show you where the stupid burns.

1) Your coworkers don't understand the value of money. Financial service sector workers are egregiously bad at managing money. Maybe it's because they're around so much of it every day that they think it comes in an endless gravy train. I remember coworkers who spent money daily at the break room vending machine and the corner coffee shop. That's a five dollar daily habit that blows over a thousand bucks a year. I had another coworker who took a taxi to work every day. I take Muni whenever I go downtown in San Francisco. Her monthly transportation expenses were 20x larger than mine. I achieved financial independence; if you can't figure out why, stop reading right now. You're useless.

2) They worship process over results. This is the sine qua non of government bureaucracies and corporations in oligopolistic market positions, with rare exceptions. Winston Churchill begged us all to look at results sometimes but hardly anyone listens. Cubicle residents would rather wear down the same ruts in the carpet year after year than stop to consider a course correction. Process can be a very comfortable cocoon for the myopic in our species. Getting results often requires making someone uncomfortable.

3) They have no career goals. I remember one gal at "Baloney Goofball Imbeciles" (a major investment management firm, renamed) who took maybe twenty minutes a day to do her job. She spent the rest of the time socializing. Coworkers admired her for being on some kind of "fast track" because she was rotating laterally between easy jobs that paid little and had light workloads. Consider just how lame everyone there must have been if she was their role model.

4) They earn little money. Like it or not, money is a measuring stick of a human's contributions to society. Life isn't fair and sometimes the most ignorant rock stars become multimillionaires. Tough stuff. The rest of us have to prove our abilities in a daily grind. Those who can bust their humps get paid. Those who expand their skills get paid more. People who show little interest in either of those projects will be at subsistence level indefinitely.

5) They save little money. This relates to #4 above. Low-income earners can build wealth through diligent saving and frugal living. High-income earners have an easier time building wealth but even they throw away money on frivolities. I currently know several high earners in San Francisco's social circles who live like there's no tomorrow. If they find themselves suddenly unemployed, they won't have a tomorrow. My former bosses at "Baloney Goofball Imbeciles" would brag - yes, BRAG - about their own empty savings accounts. I stopped listening to them when they encouraged me to spend all of my paycheck just to fit in with the work group. Those idiots had nothing left to teach me.

6) They are ignorant of the world. Intellectual activity brings personal growth. This is a no-brainer for autodidacts like Yours Truly but most people have no brains. Cubicle denizens would rather fill their spare time with rom-com movies instead of independent films, pro sports instead of performing arts, and fashion magazines instead of intellectual journals.

7) They don't know how to operate common work systems. I worked with senior wealth managers at "You and BS" who did not understand how to use the firm's automated tools to construct portfolios, retrieve analytical reports, or create pitch books. Senior supervisors at "Baloney Goofball Imbeciles" with years of experience did not know how to dig into their reporting systems for audit records. I figured all of these things out within weeks of my hiring date. Sticking out like a sore thumb helped get me fired from entry-level jobs. I can't relate to so-called "professionals" who refuse to master the tools of their chosen profession.

8) They waste time. During my first week at "Baloney Goofball Imbeciles" my supervisors took off in the middle of the work day for a three-hour shopping trip. I was left to wonder how these people could say they earned their pay. Other brokers at "You and BS" would pretend to work by eyeballing their wealthy family's money and then take off to go drinking in the early afternoon. Time-wasting losers may think they have earned sloth status with past performance. The only thing they really earn is contempt.

9) They are just plain dumb. There is nothing snobby at all about judging people at least partly on IQ scores and other objective measures of intellect. Smart people are job creators in a knowledge economy. Dumb people are a drag on productivity. Anti-intellectual coworkers belong in low-income occupations at the bottom of society yet somehow they work their way into cubicles and corner offices. Cleaning up their messes, editing their typos, and covering their errors is for masochistic suckers.

10) They lack personal integrity. I thought about listing this first but decided to leave the best for last. Losers can find excuses for lying and cutting corners. Karma eventually catches up to destructive people. Trying to change a sociopath is always a waste of effort. I put as much distance as possible between myself and liars once someone reveals their first instance of lying.

If you work with people who regularly exhibit these behaviors, it's time to find some new coworkers. If everyone in the company acts this way, the stock may be a good short candidate. There's always a better job somewhere else. If the world runs out of better jobs, there's always self-employment. Life is too short to spend even one working day with useless excuses for human beings.

Everything we've heard about the US government's electronic surveillance of everyone is now irrelevant. All of those programs, classified or otherwise, are a drop in the bucket compared to the private sector's Big Data collection. The FTC's May 2014 report on data brokers shows how marketing companies have broken down every living American's personal habits into detailed profiles. All of this data is available for a price.

I had speculated months ago about how to assign an accounting value to stored data. Its marketability clearly makes it a tangible asset. The formalization of data brokerage categories gives us hints as to how much some data categories are worth. The most valuable data probably has the densest connectivity to other data. In other words, consumers with extensive credit histories are very lucrative data nodes to track. If you spend a lot on food, clothes, entertainment and travel, your data profile is worth a lot. The poorest of the poor in rural areas probably aren't worth much at all. The funniest category in that FTC report has got to be "Rural Everlasting," a euphemism for the country bumpkins who think social media is when you yell over your neighbor's fence.

Forget about laws and regulations prohibiting personal identification links to these data brokers' stacks. Regulatory capture is a fact of life for every federal agency and the FTC is no different. Any FTC senior manager skilled in assembling knowledge taxonomies would make a prize recruit for a data brokerage. There is no way they will implement a regulation that would materially harm a future employer. It works the same way as SEC attorneys angling for a Wall Street career. No prosecutions? No problems.

The FTC has tons of privacy policy guidance for businesses. They subject personal data to commercial controls provided enterprises take minimalist precautions. Data is now too important to the economy to keep it completely private. The highest bids always win. The winning bid means privacy loses. The developed world enters the third phase of the Industrial Revolution with the antiquated notion of personal privacy rapidly fading in its rear view mirror.

The recent news that nobody reads most of the World Bank's published content made me wonder what the world is missing. I also wonder how much money the World Bank is wasting on knowledge content that fails to generate traction. The World Bank's own report on its downloads states that a quarter of its budget for country services goes to knowledge products, and 31% of these are never downloaded. That's about a 7% drag on the country services annual budget. Simply cutting the product budget by 31% may yield an immediate ROI if the remainder is allocated to more of the multi-sector reports that are most frequently downloaded.

Generating more external research citations via Google Scholar will help validate the World Bank's mission of informing policy debates. If 87% of the Bank's work goes uncited, Google's tracking tools can reveal which ones are cited by correlating language, page count, subject matter, and other metrics. Publishing in PDF should not be a limiting factor. I have seen plenty of academic material circulate in PDF copy because it successfully finds and audience.

The World Bank's social media and knowledge management people need to talk about content marketing. Google searches for marketing PDF content in social media reveal plenty of free guides from Marketo, Adobe, and other sources that want marketers to succeed. Has the World Bank ever cross-published its conference presentations to SlideShare? They should try it. It works. Have they ever completed a market analysis of the demographics that attend their conferences and request reports? Their depressing analysis of download stats may the first step.

I suspect the World Bank's problem lies in its inability to meet a market need for solutions. It acts like a bureaucracy that expects its captive customers to walk right in to its Open Knowledge Repository. The audience won't come if they don't know how the portal's products will benefit them. Private sector marketers know they must push media to a target market. The World Bank's content can solve the world's problems if it can push relevant content to an audience that needs it.

I do not normally congratulate Islamic theocracies for brutality. Today I shall make an exception. Iran has executed a billionaire for his role in a massive banking scam. This bankster defrauded a state-owned bank to buy state-owned assets. Gee, that sure sounds a lot like some of the chicanery that transpired in the US during the 2008 financial crisis. Iran sends a clear message about scammers that is lost on American executives.

The difference here in the US is that we don't execute the CEOs who commit bank fraud. We would rather let them roam free to buy off politicians and donate their ill-gotten gains to museum endowments. Our legal institutions prefer to turn a blind eye to their frauds out of concern for systemic stability. Those concerns are overblown, since the FDIC has never had qualms about shutting down unstable banks. The piles of bad mortgage paper on the Federal Reserve's balance sheet are a weapon of mass destruction. Better that we had destroyed a few big investment banks instead.

America can learn a good lesson from Iran, a former ally until they went nuts for radical Islam in 1979. The US should start prosecuting the unrepentant bankster CEOs from 2008 and ship the convicted ones to Iran for ultimate punishment. Hanging a few billionaire Westerners from lampposts in downtown Tehran would give their executioners some more practice. It may even provide a basis for an eventual US-Iran rapprochement. We can show the imams that we can meet them halfway.

Sending American white collar criminals to Iran is of a course a modest proposal, in the tradition of Jonathan Swift. Coddling them here in the good old USA is an unsatisfactory alternative if they live to steal again another day.

Full disclosure: I find ethnic Persian women to be phenomenally attractive. None of them have tried to scam me yet.

How much do you folks know about Asia? If you're native to the Anglo-West, probably not much. If you have familial connections to Asian business leaders, probably a lot. Family counts for much in Asia.

I sat in a business meeting a couple of years ago with corporate executives touting their connections to the Mongolian central government. Their credibility rested on the regulators' supposed willingness to greenlight the final development of their planned coal mine near the Chinese border. Lo and behold, Mongolia went through a fit of resource nationalism shortly thereafter. The government halted all foreign-owned development projects and partially nationalized a few of them. Those overconfident Western miners and their investors got their rear ends handed to them on a silver platter.

Many Southeast Asian societies are open to Western investment only in theory. In reality, the Chinese diaspora retains enormous economic leverage. The current instability in Thailand is a great example. The Thai-Chinese ethnic minority controls most of the economy and sides with the military in opposition to the populist Shinawatras. Westerners trying to get their foot in the door with foreign direct investment can look forward to more onerous terms now that the military has seized the government.

Westerners underestimate Asian inscrutability at their peril. Bamboo curtains and double sets of accounting books keep real economic leverage away from prying foreign eyes. Westerners who employ ethnic Chinese with blood ties to business elites stand the best chance of avoiding ripoffs. That may not be much of a chance at all, but it's better than winging it with superficial knowledge and cursory connections.

Monday, May 19, 2014

My covered calls on FXC were assigned to me over the weekend because the shares rose through the strike price. I bought all of the shares back in a wash sale and renewed the covered calls. I also renewed my covered calls on GDX, FXA, and FXF. I remain long all of these currency and mining positions as hedges against US dollar devaluation. Nothing the US government has done in 2014 will solve its long-term solvency crisis. The Alfidi Capital thesis remains solidly in the hard asset hedge corner of a dark, lonely forest.

Oh yeah, I still hold a bearish put position against FXE. I will sell off if it is in-the-money at expiration. The Euro-folks have not cleaned up their act. No one on the Continent has a clue how to run government finances. Euro-leaders have dissembled for years about whether they will let the PIIGS exit. Investors betting on a European resurgence are really betting on lies.

Those of you who are bored with my steady-state portfolio are free to roam elsewhere. I have said before that I will not invest in a stock market where central bank intervention inflates assets prices and lowers the cost of capital. That is unsustainable. Any investment decision that assumes such conditions are sustainable ignores history. Mean reversion will anger many investors who could have known better.

Crowdfunding is in full bloom. Portals are springing up all over the gall-dang place. Startups are drafting pitch decks and sticking them willy-nilly on these portals with nary a thought about the audience that can now reach them. Here's how the average amateur investor can get in trouble.

One guru at a tech conference last year openly wondered why amateur real estate investors are allowed to make poor home investing decisions but have been prohibited from seeking risk in startup investments. I won't name this dude but I think of his diatribe more often now that crowdfunding portals are filling my inbox with startup pitches. The difference between buying a house and buying into a startup has usually been about the due diligence banks put into a home loan application. Home buyers must prove that their income, net worth, and credit history are sufficient to meet the bank's loan risk criteria. Startup investors in a massively decentralized investing landscape never had to prove any of those things prior to the crowdfunding revolution.

Laws and SEC regulations growing around crowdfunding are bringing further specificity to crowdfunding investors' eligibility requirements. The regulatory climate needs to be tight before large commercial banks start buying crowdfunding portals to expand their retail investment offerings. Someone's grandparent is bound to log into their bank account someday and see a tab for "crowdfunding." Clicking on that tab and viewing a bunch of slide decks promising 30x returns may look too good to pass up for someone who doesn't know that most startups fail. Your grandma and grandpa are used to watching their savings grow. They're going to blow a whole lot of dough on failed startups if the finance sector doesn't get the controls in place now.

Amateur investors can be pretty dumb sometimes. Creditworthiness matters in real estate and competence should matter in startup investing. Crowdfunding can hurt a lot of people who won't know any better. Regulations requiring proof of assets protect investors from their own tendency to overestimate their competence.

Monday, May 05, 2014

I have been quite busy these past few weeks and I have not had much time to generate a whole lot of analysis. You people will have to busy yourselves with my haiku until things settle down. Here's some sarcasm to keep you motivated or make you upset. I truly don't care how any of you feel after reading my genius language.

The National Stock Exchange is preparing to cease operations. Who are these people anyway? I've never heard of them and I'm really in step with the markets. They should have done what IEX Group did to beat the dark pools at their own game but I guess routing slower trades never occurred to them. Maybe a couple of squirrels could use their system to trade acorns after they turn the lights out.

Norway is transferring its sovereign wealth fund from JPMorgan to Citigroup. Oh for crying out loud, that is a dumb move. Switching from the Rockefeller's family bank to a bank that needed massive government bailouts shows how little the Norwegians understand about the American aristocracy. The Rockefeller institutions have proven remarkably resilient. JPM is one domino that will stick straight up as others fall thanks to its elite connections. Just ask Warren Buffett, who has owned JPM in his personal portfolio.

American banks are cutting their exposure to Russian transactions. I think a lot of bicoastal preppies will run short of imported caviar if Russian exporters can't get credit lines at US banks. Further sanctions could very well force these banks to sell off what remains of their Russian loan portfolios, in a discounted gift to any European banks able to line up bids. Our banks have very limited exposure to Russia anyway.

There hasn't been a whole lot in the news lately to make me angry. I have been quite happy lately noting that there are a lot of attractive women walking around my local area wearing shorts, tight skirts, and yoga pants. I just might invite them over to my place where they can unburden themselves of said clothing, if I can find the time in my schedule.

I don't let hype over US-Russia economic sanctions take my eye off the ball. Other wanna-be global powers can talk all they like about creating alternative global settlement systems to the US-based SWIFT system. Russia will not succeed even with help from China until both of their economies are completely open. Transparency and the rule of law have enterprise value even though they are weakening in the US. The relative advantage still lies with the Anglo-West and even Asian banks prefer more transparent interbank transfers.

The real action worth tracking is in mobile P2P payments. The emerging tech for smartphones is an existential threat to the major credit card companies. Any combination of Google Wallet and M-Pesa is a knockout blow to credit card payment systems. The combo will eventually metastasize in the developed world.

Vendors who migrate from card payments to mobile payments will find many advantages. They won't lose gross margin by paying credit card charges. Reducing the number of steps in a transaction means less friction for purchases. Consumers will love the simplicity of mobile transactions and spend even more of their dwindling middle-class paychecks. The unbanked poor in the US will finally join the mobile revolution once they see how quickly M-Pesa fills their SNAP accounts. Everybody wins.

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Alfidi Capital is a private financial research firm.Alfidi Capital is not affiliated with any broker-dealer and does not manage money for clients.All information mentioned in this blog is derived from public sources.Alfidi Capital makes no representation as to the accuracy or completeness of this information.Alfidi Capital and its owner, Anthony J. Alfidi, may from time to time hold long or short positions (including options, warrants, rights, and other derivatives) in the securities mentioned in this blog.This blog is provided for informational, educational, and entertainment purposes only and does not constitute a recommendation or solicitation to execute a transaction in any investment product.Investors should consult with a properly licensed and registered investment professional before making any investment decision.The bottom line:Enjoy reading this blog, but the risk you take with investing is entirely your own.